Fabricators take wait-and-see approach on steel tariffs

Metal prices are up,but so are economic indicators

History suggests that tariffs on imported metals are bad for steel-consuming customers,such as fabricators.However,with President Donald Trump's recent announcement of tariffs, some fabricators are not rushing to judgment and willing to give the president the benefit of the doubt.

"[Fabricators] remember back in 2003 when prices were much more reasonable.For example,hot-rolled sheet was selling for less than $300 per ton back then,and now it's selling close to $600 per ton. Granted,those 2003 prices were below historic averages,but since then the prices have risen to historic highs.This is a history lesson no fabricator wants to sit through."
 

I wrote that in a blog post on thefabricator.com in the beginning of 2008.In the words of New York Yankees Hall of Famer and noted philosopher Yogi Berra,"It'sdéjà vu all over again."
 

On March 8 President Donald Trump proclaimed he was going to apply a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports as a result of a U.S.

Department of Commerce investigation that suggested that these imports threatened the viability of the domestic steel industry,which in turn was a threat to national security.That left the White House staff scrambling as they tried to construct formal guidelines around the new trade penalties.Hours later an announcement was made that the tariffs would not be applied to major trading partners Canada and Mexico.The next step is determining if other allies to the U.S. or certain steel types should be exempted from the tariffs as well. Obviously,this is a developing story.
 

What fabricators do know is that steel prices are rising.Steel Market Update (SMU) is reporting that its hot-rolled index was averaging $840/ton FOB the mill for spot tonnage as of mid-March.Back in early November,the SMU Steel Index reported hot-rolled as averaging $600/ton.What goes up continues to go up.

John Packard,founder of SMU in 2004 and a veteran of the steel industry since 1977,was succinct in his description of metal fabricators:"You're in a vise at the moment."
 

He shared that sentiment during a panel discussion titled"Navigating the Unpredictable Steel Market"at The FABRICATOR's Leadership Summit in Scottsdale, Ariz.,on March 8. He went on to suggest that hot-rolled steel prices could stay in this range for the foreseeable future,perhaps with a little more room for growth.He said the recent high point for hot-rolled came in 2008 when price climbed to $1,070/ton.
 

Ladd Hall,executive vice president,flat-rolled products,Nucor Corp.,and Don McNeeley, president and CEO,Chicago Tube and Iron Corp.,a subsidiary of Olympic Steel,preceded Packard as speakers.Ladd made the case for the tariffs,and McNeeley suggested to trust that the current economic expansion would make raw material price increases tolerable.

Ladd was particularly blunt:"The trade war has started. We are way behind on it."
 

Ladd suggested that the domestic steel industry was expected to grow because of tax relief and Trump's commitment to deregulation. At Nucor alone,he said the company is ready to spend $1 billion to expand and modernize its own facilities.Plans include $230 million to build a new cold mill in Arkansas with advanced cold reduction technology for lighter-gauge and higher-strength sheet for the automotive industry and $176 million for a new hot band galvanizing and pickling line in Kentucky,which at 72 inches would be the widest in North America.
 

He added that the U.S. economy would continue to be energized,even with the tariffs.The nonresidential and residential construction,machinery and equipment,and energy segments of the economy all look to be growing,while automotive and infrastructure spending is somewhat flat for 2018.
 

Ladd also was dismissive about the possible loss of jobs in the metal fabricating sector, suggesting the 200,000 reported job losses that resulted from President George W. Bush's 2002 tariffs were grossly exaggerated. ("It's just not true,"he said.) He contended that the overall economic impact of the tariffs on end products would be minimal as well, referencing a possible 0.5 percent boost in the cost of an automobile and even that now famous can of soup.
 

McNeeley said fabricators should be more focused on the economic opportunities that await them."My final issue today is the economic outlook, and it's a non-issue,"he said.

He stressed that metal prices likely would go up,but they would go up only as much as demand would allow.After all,if they continued to rise,imported steel—even with tariffs—would be a purchasing alternative for many shops once again.
 

With the conclusion of the presentations,I waited for the attendeesin the room to get a little more rambunctious.After all, the fabricators,many of whom lived through the tariffs of 2002, had been told to relax and let the tariffs play out for the betterment of the U.S. economy, now and in the future,even though material costs represent a huge portion of any shop's operating budget.
 

Finally,a fabricator raised his hand.Would it be a comment of frustration?Would he stand up for the steel consumers getting jammed?Would he ask for others to join him in contacting elected officials to overturn the tariffs?
 

Nope.He merely expressed his desire for the metals market to reach some level of price consistency.He said fabricators needed"certainty"to be able to run their businesses more efficiently.
 

That was it.Fabricators undoubtedly remain committed to supporting the man that they helped to put in the White House, even though some policies may hurt them in the short term.But if they are looking for certainty,that may be in short supply.

Source:Wire Bulletin